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Venezuela FOREIGN ECONOMIC RELATIONS
Foreign Trade
The importance of oil exports made foreign trade
essential to
the country's prosperity. Venezuela benefited from
extraordinarily favorable terms of trade in the 1970s--the
quadrupling of oil prices in 1973 alone provided the
nation with
unprecedented wealth. Despite its benefits, the increase
in oil
exports also exacerbated the country's overreliance on a
single
export commodity; oil often exceeded 90 percent of total
export
value in the early 1980s. The oil boom also affected
import
patterns. Because of the huge foreign exchange revenues
from oil,
the country developed a voracious demand for imported
luxury
goods that persisted even as oil prices ebbed in the midto late
1980s. The 50 percent reduction in world oil prices in
1986
underscored these structural weaknesses in the Venezuelan
economy.
In 1988 official imports totaled US$10.9 billion; the
country
also ran a trade deficit in that year of US$758 million,
the
first since 1978 (see
table 11, Appendix). The country's
imports
peaked in 1982 at US$11.7 billion, before the 1983
economic
crisis and the subsequent imposition of multiple exchange
rates,
higher tariffs, and greater nontariff barriers, all of
which
stifled new imports. These protective import measures
caused
imports to drop by 43 percent from 1983 to 1986, before
imports
surged again to the 1988 level. In 1988 raw materials
represented
44 percent of all imports, followed by machinery (26
percent),
transportation goods (16 percent), and consumer goods (15
percent). The United States, traditionally Venezuela's
leading
source of imports, supplied 44 percent of all foreign
goods in
1988. Overall, Venezuela ranked as the sixteenth largest
trading
partner of the United States and was the largest export
market
for the state of Florida. In 1988 the Federal Republic of
Germany
(West Germany) trailed the United States with 8 percent of
all
imports, followed by Italy with 6 percent, and Japan with
5
percent. Brazil, France, Britain, and Canada were other
notable
suppliers. Imports from members of the Andean Common
Market
(
Ancom--see Glossary)--Colombia, Peru, Ecuador, and
Bolivia--accounted for only a small fraction of total imports.
Import policy traditionally sought to protect local
industry
and agriculture from foreign competition and to substitute
local
production for imports. The government accomplished these
goals
through exchange rate manipulation, the imposition of
tariffs,
and through import licensing restrictions. In 1988 there
were
forty-one different tariff rates on more than 6,000 goods.
Although tariffs sometimes exceeded 100 percent, the
average was
37 percent. Fiscal policies, however, reimbursed as much
as twothirds of these tariff payments through a complex system
that
favored priority development activities. Nevertheless, as
part of
the 1989 structural adjustment policies, the Pérez
administration
chose to liberalize the import regime to force local
industries
and farms to be more competitive with international
counterparts,
much to the displeasure of most local businessmen. In 1989
the
government reduced the maximum tariff to 80 percent to
simplify
tariffs into a uniform structure, expected to include a
maximum
of 20 percent and a minimum of 10 percent tariffs by 1993.
Import
liberalization also addressed nontariff barriers, such as
import
licensing agreements, which further hampered the free flow
of
imports and often bred corruption. The government
abolished most
import licenses in 1989, including those of several
state-owned
enterprises. Economists expected that liberalization
policies
would hurt the country's balance of payments in the short
run,
but make the economy more competitive in the long run.
Improved
access for imports was also expected to increase trade
flows from
within the Andean region.
Exports declined in the early 1980s, then rose unevenly
in
the late 1980s, but still did not came close to the peak
level of
US$20.1 billion in 1981. Both export and import figures
excluded
substantial contraband trade along the Colombian border.
Declining exports in the 1980s resulted almost entirely
from
lower oil prices. Traditional exports--oil, iron, coffee,
and
cocoa--averaged about 95 percent of total exports from
1980 to
1985, but fell as a percentage of total exports after the
drop in
oil prices in 1986. The role of nontraditional exports
jumped
from 4 percent of total exports in 1980 to 18 percent by
1988.
Increased overseas sales of aluminum, steel, and
petrochemicals
also diversified the country's export base. The public
sector
produced nearly all the country's exports. The state also
exported as much as two-thirds of all nontraditional goods
in
1988, but the increasing role of private investment in
basic
metals and petrochemicals was expected to lower that
percentage
during the 1990s.
Venezuela shipped half of its exports to the United
States in
1988, with another 6 percent destined for West Germany, 4
percent
to Japan, 4 percent to Cuba, and nearly another 4 percent
to
Canada. Ancom countries received an average of about 2
percent of
exports in the 1980s. Venezuela exported oil to a large
number of
other countries, quantities of which were often controlled
under
OPEC quotas or other agreements, such as the San José
Accord
(see Petroleum;
Natural Gas and Petrochemicals
, this ch.).
Trade policy focused on making national exports more
competitive and diversifying away from an overdependence
on oil.
The most consequential reform toward this goal was the
1989
devaluation of the bolívar to market levels. This made
Venezuelan
exports cheaper and imports more expensive, thereby
favoring
export-oriented production over import-dependent
activities. The
Foreign Trade Institute, a government body, also sought to
expedite exporting procedures to encourage entrepreneurs
to seek
foreign markets.
Trade policy, however, also concentrated on the goal of
Venezuela's accession to the General Agreement on Tariffs
and
Trade
(
GATT--see Glossary) during the early 1990s.
Venezuelan
adherence to the GATT entailed several unpopular policy
reforms,
some of which would come at the expense of exporters. For
example, the government reexamined the various subsidies
it
afforded to exporters, many of which were in violation of
GATT
regulations. As a result, the government curtailed the
amount of
subsidized credit offered to merchants for financing
exports,
credit which paid for as much as 25 percent of exports in
a given
year during the 1980s. Likewise, exporters received tax
rebates,
or bonos de exportación, which the GATT also
considered an
unfair export subsidy. The government planned to phase out
these
rebates in the early 1990s, a decision opposed by various
export
associations because of the country's already weak export
infrastructure for nontraditional items. Other subsidies
found
throughout the economy, such as subsidized industrial and
agricultural credit, were also potentially affected. The
tariff
reductions begun in 1989 also worked to fulfill GATT
requirements.
Venezuela joined Ancom in 1973 and became a signatory
to the
Latin American Free Trade Association (LAFTA) in 1982.
Caracas
was the headquarters of Ancom's Andean Development
Corporation
and the region's Latin American Economic System (Sistema
Económico Latinoamericano--SELA); the latter was dedicated
to
analyzing economic and social policies throughout the
hemisphere.
Although thoroughly endorsing the aims of these
organizations,
Venezuela played only a minimal role in regional economic
relations because the composition of its trade provided it
with
only limited interaction with neighboring economies.
Venezuela
did, however, accept Ancom's provisions to lower the
profile of
foreign investment by reducing the level of such
investment to 50
or 20 percent depending on the sector. Nevertheless, as
Chile,
Ecuador, Bolivia, and eventually Venezuela embraced more
orthodox
economic policies in the late 1970s and 1980s, the
integration
pact diminished in significance. By 1990 Venezuela
anticipated
liberalizing its foreign investment code to promote new
multinational ventures, thereby breaking with Ancom's
stipulations.
Data as of December 1990
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